Help wanted and badly needed

Hiring is such a priority that it's now the first thing visitors see on the company's website. As a result, the quarterly filing shows this line item has driven costs up on multiple fronts. YoY maintenance and repair expenses were up 11.2% due in part to the mechanic shortage. Labor and related benefits were up 4.7% due to the driver shortage and higher wages, as well as "an increase in the frequency and severity of workers compensation claims." Risk management expenses were also up 33.3% for the quarter as a result.

The mechanic shortage has become particularly costly because Advanced is now having to pay more for overtime or send more trucks to outside repair shops. That means longer turnaround times, fewer spares on hand and more rentals to help fill the gap.

Burke said the company has started using an outside recruiter "for the first time in our history," getting more competitive with benefits by setting up an HRA system, and finding other ways to highlight company culture.

Due in part to a recent fatal crash during the quarter, Advanced has also done a "complete retraining" on defensive driving and reevaluated its training program. "...Some of the talent coming through the door is not the talent we've seen in the past. So we've had to look at our training program and, really, double down the amount of time we're spending in the cab and in the classroom with people, before we're letting them drive our trucks," said Burke.

Advanced Disposal's experience highlights the two-fold challenge of the current labor market — not only is it hard to get people, but sometimes the people that are available may end up being more expensive due to inefficiencies if they're not properly qualified. Burke said the fix would be incremental, and asked analysts to frame their expectations to go beyond short-term costs.

"It's not just about heads; it's about a quality driver, and a quality mechanic fixing things once, not twice. Those things will help us with our cost," said Burke.

Following up on his second quarter announcement of new in-cab technology to complement the existing DriveCam system, Burke said it has now been installed in about 400 trucks and would be in half of the fleet by next fall. As for whether the company planned to invest more money in new trucks to help recruitment and retention, as Republic Services is doing, Burke said the company's fleet was in fine shape.

"Fleet is not an issue to attracting drivers and mechanics. I think where you'll see us continue to put money is on training, and on recruiting, and on things around culture," he said. "We want to create the culture in our local operating locations, where if you want to be in the garbage business, you will want to be with us."

Other news

Advanced reported average yield of 4.3% and approximate disposal pricing of 4%, which offset a YoY decline in volumes. Burke said pricing remains more important than volume in most of the company's markets, and competitors are largely acting the same. "Our ability to push pricing and hold price has been about as good as I've seen in my career."

Recyclable commodities generated $4 million for the quarter and ongoing market conditions created a $4.2 million EBITDA headwind. Burke said conversations with municipal customers about "pricing concessions" are ongoing. The company plans to start a dialogue with 90% of its revenue base in that sector by the end of the year.

Advanced reported $16.3 million in expenses related to a state-mandated leachate remediation project at an unidentified landfill. This includes infrastructure and the cost of redirecting material to third-party sites. "We're putting in some pumps on the redesign and an actual extraction and disposal of the leachate," said CFO Steve Carn. Burke described this as worth the upfront investment to "maximize the permitted air space that we have."

Looking ahead

Advanced reported nine acquisitions through Q3 for a total of $6.1 million, up slightly from six deals at a combined $5.9 million through Q2. Burke announced that a new $6 million deal had just been approved in October.

Between that new deal, and signed letters of interest, he was cautiously optimistic the company would hit the low-end of its M&A target this year at around $30 million total. The current focus remains on more modest tuck-in deals in existing markets that can improve route density and internalize volume at existing landfills.

Asked about his economic outlook around housing, Burke said the company has fairly limited exposure and so far hasn't seen any signs that the market is slowing down in the Southeast. "We're seeing housing still pretty strong. It really still feels mid-cycle to us. We're not seeing any indicators that jump up and give us pause that [2019] is not going to look a lot like [2018]."